My first thought was that it was some sort of felted material, but upon closer inspection I believe the “felted” appearance is just the result of washing/aging. I would guess an inexpensive synthetic material.
“Pilling” is a common problem in synthetic blankets. Polyester and acrylic yarns, especially when the weave is slack, can be worked loose, and rebellious threads accumulate on the fabric’s surface. Natural fibers, like cotton blankets, also pill but loose, synthetic fibers are more susceptible. source